Business Competition – Employer Law Reporthttps://www.employerlawreport.com
Helping employers avoid the storm of legal issues in the workplaceFri, 18 Jan 2019 16:20:07 +0000en-UShourly1https://wordpress.org/?v=4.9.9Multi-million dollar high tech settlement of anti-poaching case provides lessons to even much smaller employershttps://www.employerlawreport.com/2015/09/articles/employment-class-collective-actions/multi-million-dollar-high-tech-settlement-of-anti-poaching-case-provides-lessons-to-even-much-smaller-employers/
Fri, 11 Sep 2015 17:18:59 +0000http://www.employerlawreport.com/?p=5547Apple, Adobe, Google, and Intel had a $415 million settlement approved last week to settle the terms of a lawsuit brought by software engineers alleging that the companies had violated wage and anti-trust laws by agreeing not to recruit or “poach” each other’s employees.

The case began in 2009 when the U.S. Department of Justice Antitrust division investigated the employment and recruitment practices of the companies. Then, in 2011, software engineers sued the companies for damages, claiming the companies had agreed to provide each other notice whenever one made an offer to another’s employee. They also alleged the companies agreed …

Apple, Adobe, Google, and Intel had a $415 million settlement approved last week to settle the terms of a lawsuit brought by software engineers alleging that the companies had violated wage and anti-trust laws by agreeing not to recruit or “poach” each other’s employees.

The case began in 2009 when the U.S. Department of Justice Antitrust division investigated the employment and recruitment practices of the companies. Then, in 2011, software engineers sued the companies for damages, claiming the companies had agreed to provide each other notice whenever one made an offer to another’s employee. They also alleged the companies agreed to cap pay packages for prospective employees and to refrain from recruiting one another’s employees. Plaintiffs claim these agreements lowered their pay 10% to 15% below market. A California district judge ruled last Wednesday that the $415 million class action settlement was a fair estimation of the strength of the software developers’ claims.

The types of agreements alleged to have taken place in this case are typically per se illegal. That is, companies can’t agree among themselves to refrain from hiring one another’s employees where the sole purpose is to protect their respective businesses and diminish competition. The effect of such agreements is to prevent an employee from moving to another company, thereby restricting work availability in the market and depressing labor costs. This is a violation of anti-trust laws that prohibit agreements between entities that unreasonably restrain trade and affect interstate commerce.

There are, however, certain situations where agreement among businesses to not hire each other’s employees are legal. When there is a legitimate business agreement with a procompetitive purpose beyond simply restricting an employee’s mobility to protect the business, those agreements may be legal as long as they are reasonable. For example, where a company contracts help with another company for a specific project, the company and the contracting company may agree not to hire each other’s employees for the legitimate business purpose of not allowing one company unfettered access to another’s. Likewise, it may be permissible for two companies to agree as part of a merger or acquisition that they will not hire each other’s employees for a short period of time following the closing.

The lesson for employers? Think twice before setting up a deal with competitors in order to keep your employees. It might just be an anti-trust violation with the potential for a large recovery.

]]>Introducing Porter Wright’s newest blog – Antitrust Law Sourcehttps://www.employerlawreport.com/2014/09/articles/business-competition/introducing-porter-wrights-newest-blog-antitrust-law-source/
Mon, 08 Sep 2014 14:26:26 +0000http://www.employerlawreport.com/?p=4960We wanted to take a moment to announce Porter Wright’s newest endeavor, Antitrust Law Source. Antitrust Law Source is a new site designed for visitors to quickly and easily learn about developments in this growing arena. The site primarily will focus on providing news and legal updates in the antitrust arena in a podcasting format. The podcasts will feature a variety of insights, educational offerings, discussions and interviews with thought leaders across a variety of industries. For those of you who are frequent readers of this blog you may recall two recent blog posts by Jay Levine (editor of …Continue Reading →]]>

We wanted to take a moment to announce Porter Wright’s newest endeavor, Antitrust Law Source. Antitrust Law Source is a new site designed for visitors to quickly and easily learn about developments in this growing arena. The site primarily will focus on providing news and legal updates in the antitrust arena in a podcasting format. The podcasts will feature a variety of insights, educational offerings, discussions and interviews with thought leaders across a variety of industries. For those of you who are frequent readers of this blog you may recall two recent blog posts by Jay Levine (editor of the Antitrust Law Source blog) and Jason Starling that address some recent examples of how antitrust law and employment law can intersect.

Privacy and data securityWe encourage you to visit the site and share your thoughts with us.

]]>Federal judge rejects the proposed settlement for tech companies who allegedly violated antitrust law by agreeing not to solicit each other’s employeeshttps://www.employerlawreport.com/2014/08/articles/business-competition/federal-judge-rejects-the-proposed-settlement-for-tech-companies-who-allegedly-violated-antitrust-law-by-agreeing-not-to-solicit-each-others-employees/
Mon, 18 Aug 2014 17:47:04 +0000http://www.employerlawreport.com/?p=4950We previously discussed here the antitrust case involving several high-tech companies who allegedly entered into bilateral agreements in which they agreed not to solicit each other’s employees. These companies settled with the U.S. Department of Justice and were subsequently sued by a class of software engineers. Early on, Intuit and Pixar/Lucasfilm settled, and recently the plaintiffs and the remaining tech companies reached an agreement to settle the case for $324.5 million. Or maybe they thought they had, but guess what? The federal judge overseeing the case rejected that settlement, finding that it did not provide adequate monetary compensation.

We previously discussed here the antitrust case involving several high-tech companies who allegedly entered into bilateral agreements in which they agreed not to solicit each other’s employees. These companies settled with the U.S. Department of Justice and were subsequently sued by a class of software engineers. Early on, Intuit and Pixar/Lucasfilm settled, and recently the plaintiffs and the remaining tech companies reached an agreement to settle the case for $324.5 million. Or maybe they thought they had, but guess what? The federal judge overseeing the case rejected that settlement, finding that it did not provide adequate monetary compensation.

U.S. District Judge Lucy Koh rested her decision primarily on the fact that, in the present settlement, the plaintiffs would recover proportionally less than the plaintiffs in the earlier settlements. The settling parties argued that the settlement was fair because the plaintiffs had “weaknesses in [their] case such that [they] face[] a substantial risk of nonrecovery . . . .” But, the judge found this explanation dubious, at best. In fact, the judge found that the plaintiffs had overcome substantial hurdles such as achieving class certification and overcoming dispositive motions. As the judge saw it, achieving class certification and beating dispositive motions provided greater settlement leverage, which the earlier settling defendants lacked, and thus should result in a larger settlement. Plus, and this should really scare the remaining defendants, the judge wrote that she believed that the plaintiffs had presented overwhelming documentary evidence in support of their antitrust claims. Thus, about the only remaining risk faced by the plaintiffs would be the unpredictability of trial. Yet, for the remaining defendant tech companies, they faced the potential of $9 billion in damages exposure.

The judge did throw a bone to the defendants by noting what settlement offer she would approve. She stated that the plaintiffs should receive at least $380 million—a mere $59.5 million raise—as that figure would be proportionate to the recovery against the earlier settling companies.

Now, the parties go back to settlement negotiations where the plaintiffs clearly have the momentum and leverage on their side given the judge’s favorable decision. It will be interesting to see what settlement results from those negotiations and how much the remaining tech companies will need to pay to resolve the civil claims by their software engineers.

]]>Tech companies can’t escape antitrust liability for agreeing not to solicit competitors’ employeeshttps://www.employerlawreport.com/2014/04/articles/business-competition/tech-companies-cant-escape-antitrust-liability-for-agreeing-not-to-solicit-competitors-employees/
Fri, 11 Apr 2014 17:49:37 +0000http://www.employerlawreport.com/?p=3711Sometimes, the worlds of antitrust law and employment law intersect. For example, as most businesses know, it is generally permissible under federal, state, and local law for employers to enter into non-recruitment or non-competition agreements with their employees that are reasonably tailored to prevent unfair competition. A non-recruitment agreement typically prohibits an employee from stealing co-workers for another company. Similarly, a non-competition agreement typically prohibits an employee from working for the employer’s competitor both during employment and for a reasonable period of time thereafter. What happens, however, when employers simply bypass these employee agreements and instead enter into agreements with …Continue Reading →]]>

Sometimes, the worlds of antitrust law and employment law intersect. For example, as most businesses know, it is generally permissible under federal, state, and local law for employers to enter into non-recruitment or non-competition agreements with their employees that are reasonably tailored to prevent unfair competition. A non-recruitment agreement typically prohibits an employee from stealing co-workers for another company. Similarly, a non-competition agreement typically prohibits an employee from working for the employer’s competitor both during employment and for a reasonable period of time thereafter. What happens, however, when employers simply bypass these employee agreements and instead enter into agreements with one another about who gets which employees, and at what price? This issue is playing out in In re High-Tech Employee Antitrust Litigation, No. 11-cv-02509-LHK (N.D. Cal.), a class action claiming that six of the country’s most well-known technology companies agreed not to poach each other’s skilled employees. Employment law, meet antitrust law.

Background

In September 2010, the Antitrust Division of the Department of Justice reached a settlement with Adobe Systems Inc., Apple Inc., Google Inc., Intel Corp., Intuit Inc., and Pixar that prevents them from entering into non-solicitation agreements with each other for employees of their respective companies. Following that settlement, several software engineers sued these companies in 2011 for violations of the federal and state antitrust laws. The plaintiffs alleged that these companies had entered into a series of bilateral agreements with one another where they agreed not to solicit each other’s employees. The result of these bilateral agreements was to suppress wages and other employee compensation because the companies were prohibited from competing for talent, which would have increased the cost of hiring that talent.

The Decision

After various motions to dismiss, amended pleadings, and a fight over class certification that the plaintiffs won, the district court addressed separate motions for summary judgment filed by the defendants. The federal district court found that the plaintiffs presented sufficient evidence to proceed to trial. The decision is In re High-Tech Employee Antitrust Litigation, 2014 U.S. Dist. LEXIS 46335 (N.D. Cal. Mar. 28, 2014). Much of the evidence in this case involved various high ranking executives discussing the fact that competition for talent tends to drive up employees’ salaries, which hurts the bottom line. For instance, Edward Catmull, President of Pixar, noted in his deposition that solicitation of employees “messes up the pay structure.” Similarly, George Lucas (of Lucasfilm Ltd., one of the defendants) stated “we cannot get into a bidding war with other companies because we don’t have the margins for that sort of thing.”

The Impact

This decision is an excellent reminder to businesses across industries. While companies may be able to enter into agreements with their employees restricting their ability to compete, entering into agreements with competitors in an attempt to reach the same result may violate antitrust laws. On that point, an interesting facet of this case is that the companies involved were largely employing individuals in California. California state law prohibits non-competition agreements with employees, except if the agreement is part of the sale of a business. In any event, agreements among competitors tend to receive the highest antitrust scrutiny, and unless there is a valid, procompetitive reason for the agreement, it will likely raise some serious concerns. And while employment-related agreements are not the usual antitrust fodder, one must be aware of the “rules of the road,” as these issues do indeed pop up from time to time. In fact, antitrust law could arise in the context of a company trying to avoid expensive litigation over non-compete agreements by entering into “a gentleman’s agreement” with one or more competitors, as was apparently the case in this recent litigation. Antitrust concerns could similarly arise in the context of settling a non-competition lawsuit where the parties agree on “carve-outs” for certain customers or territories. These types of agreements require close examination and consideration.

The Bottom Line

Before entering into any arrangement with another company that may reduce competition, consult with your antitrust counsel. No company wants to face the U.S. Department of Justice (or state attorneys’ general for that matter) knocking at the door—and almost certain civil litigation following any such governmental investigation. As the famous “Sergeant Phil Esterhaus” used to say on Hill Street Blues: “Hey, let’s be careful out there.”

]]>Facebook Posts Not “Solicitation” Under Former Employee’s Restrictive Covenant Agreementhttps://www.employerlawreport.com/2013/02/articles/business-competition/facebook-posts-not-solicitation-under-former-employees-restrictive-covenant-agreement/
Wed, 27 Feb 2013 15:28:18 +0000http://employerlawreport.default.wp1.lexblog.com/2013/02/facebook-posts-not-solicitation-under-former-employees-restrictive-covenant-agreement/Describing it as a “rather novel issue,” a federal court recently held that a former employee’s public posts on his personal Facebook page did not constitute solicitation of his former co-workers under the terms of his non-solicitation agreement with his former employer. [See Pre-Paid Legal Services, Inc. v. Cahill, No. 12-CV-346, Doc. 31 (Jan. 22, 2013), Report and Recommendation affirmed and adopted, Doc. 32 (Feb. 12, 2013)] The court further noted that invitations sent to former co-workers to join Twitter were not solicitations under the agreement because the invitations did not request the co-workers to “follow” the former employee, …Continue Reading →]]>

Describing it as a “rather novel issue,” a federal court recently held that a former employee’s public posts on his personal Facebook page did not constitute solicitation of his former co-workers under the terms of his non-solicitation agreement with his former employer. [See Pre-Paid Legal Services, Inc. v. Cahill, No. 12-CV-346, Doc. 31 (Jan. 22, 2013), Report and Recommendation affirmed and adopted, Doc. 32 (Feb. 12, 2013)] The court further noted that invitations sent to former co-workers to join Twitter were not solicitations under the agreement because the invitations did not request the co-workers to “follow” the former employee, they did not contain any information about the new employer, and they were sent by Twitter instead of as targeted email blasts by the former employee.

Though the court found that the former employee’s social networking activities did not constitute solicitation under his agreement, it did enter a preliminary injunction against the former employee based on his direct solicitation of one of his former co-workers through a private in-person meeting and follow up text messages sent to the co-worker. The court entered the injunction until the issues could be presented to an arbitrator pursuant to the parties’ arbitration agreement.

According to the court, the former employer did not present any evidence showing that the former employee’s Facebook posts, which touted his professional satisfaction with his new employer and his new employer’s products, resulted in the departure of any of his former co-workers, or any evidence showing that the former employee was targeting his former co-workers by posting directly on their walls or through private messages. The court then compared these facts to an Indiana state court case holding that a former employee’s posting of an employment opportunity with his new employer on LinkedIn did not constitute solicitation [Enhanced Network Solutions Group, Inc. v. Hypersonic Technologies Corp., 951 N.E.2d 265 (Ind. Ct. App. 2011)] and a Massachusetts state court case holding that a post announcing a former employee’s employment with a new company on her Facebook page did not constitute solicitation even though the former employee had become Facebook friends with eight of her former clients after leaving her former employer. [See Invidia, LLC v. DiFonzo, 2012 Mass. Super. LEXIS 273 (Mass. Super. Oct. 22, 2012)]

Before the preliminary injunction hearing in Pre-Paid Legal Services, the former employer sought expedited discovery. Among other things, the former employer requested forensic images of the former employee’s “cellular telephone(s), computer, iPad and/or any other electronic devices” used to conduct business, and all “e-mails, Facebook posting[s], Twitter postings or postings on any other social media” concerning his new employer or concerning employment with anyone other than his former employer. The parties apparently agreed to a third-party review of the former employee’s electronic devices, and the court granted the motion for expedited discovery to the extent the parties were conducting limited discovery by agreement. The court also ordered “that all evidence currently in existence be preserved” and reiterated during the preliminary injunction hearing that it “continues to enforce the order directing parties to preserve all the evidence.”

Takeaways

The Pre-Paid Legal Services case has some important takeaways. First, in this era of social media, there is a risk that language used in existing contracts and policies to prohibit certain types of conduct may not adequately protect a business from actions that can be taken through social networking websites. For example, based on the reasoning in Pre-Paid Legal Services, an employee may be able to establish contacts with clients and co-workers through social networking sites and then attempt to circumvent his non-solicitation restrictions after the termination of his employment by communicating information to his former clients and co-workers through public posts on those sites. Accordingly, businesses may need to revise restrictive language they use in contracts and company policies so they can better deal with the risks presented by social networking.

Second, as previously reported in articles about discovery of social media information and e-discovery trends, information posted on social networking websites can be relevant to the parties’ claims and defenses and, therefore, discoverable. This means that parties may have a duty to preserve social media information when litigation arises or is reasonably anticipated and that parties should think about requesting such information depending on the nature of the case. It also means that the law on social media discovery will continue to develop as more parties request social media information and more discovery disputes arise relating to the preservation, relevance, formatting, and production of such information.

Third, by entering a preliminary injunction against the former employee, the court effectively reaffirmed the principle that courts may enter injunctive relief in disputes that are otherwise referable to arbitration on the merits to preserve the status quo and ensure that the arbitration is not rendered “meaningless or a hollow formality.” [See, e.g., Performance Unlimited, Inc. v. Questar Publishers, Inc., 52 F.3d 1373, 1380 (6th Cir. 1995).] Interestingly, the court in Pre-Paid Legal Services entered the preliminary injunction even though the parties had incorporated the American Arbitration Association’s Optional Rules for Emergency Measures of Protection, which provide for the appointment of an emergency arbitrator within one business day of receiving notice of the requested emergency relief. [See Pl.’s Response to Def.’s Motion to Stay Pending Arbitration, Doc. 15 (Aug. 27, 2012)]

Jay Yurkiw

]]>Ohio HB 417 May Mean the End of Physician Non-Solicitation Agreementshttps://www.employerlawreport.com/2013/01/articles/business-competition/ohio-hb-417-may-mean-the-end-of-physician-non-solicitation-agreements/
Fri, 25 Jan 2013 16:46:51 +0000http://employerlawreport.default.wp1.lexblog.com/2013/01/ohio-hb-417-may-mean-the-end-of-physician-non-solicitation-agreements/There has always been a tension between a health care employer’s desire to protect its patient relationships and a physician’s obligation not to abandon patients when a physician either resigns or is terminated from employment. In Ohio, physician non-compete agreements are legal so long as they (1) are no broader than necessary to protect the employer’s business interests; (2) do not unreasonably restrain the physician’s ability to practice in the future; and (3) are not injurious to the public. As a result, many physician employment agreements contain post-employment non-competition and non-solicitation provisions. While reasonable non-competition provisions remain viable, recently enacted …Continue Reading →]]>

There has always been a tension between a health care employer’s desire to protect its patient relationships and a physician’s obligation not to abandon patients when a physician either resigns or is terminated from employment. In Ohio, physician non-compete agreements are legal so long as they (1) are no broader than necessary to protect the employer’s business interests; (2) do not unreasonably restrain the physician’s ability to practice in the future; and (3) are not injurious to the public. As a result, many physician employment agreements contain post-employment non-competition and non-solicitation provisions. While reasonable non-competition provisions remain viable, recently enacted Ohio HB 417 may put an end to physician non-solicitation agreements at least insofar as they relate to patients.

Specifically, HB 417, which goes into effect on March 22, 2013, requires a health care entity to either send a notice to patients after a physician’s employment has been terminated for any reason or to provide the physician with the names and contact information of the patients so that the physician can directly send the notice. The notice must be sent to any person who received physician services from the departing physician in the two year period immediately preceding the termination. The legislation contains exemptions for physicians providing episodic or emergency services, medical students, hospice medical directors and for physicians working a community mental health agency, a federally qualified health center or a federally qualified health center look-alike.

For purposes of the act, a health care entity is any of the following that employs a physician to provide physician services: (1) a hospital registered with the Department of Health, (2) a for-profit or nonprofit corporation, (3) a limited liability company, (4) a health insuring corporation, (5) a partnership, or (6) a professional association that, under Ohio law, must be composed only of individuals authorized to perform a professional service. In addition, a "termination" is defined as the end of a physician’s employment with a health care entity for any reason, other than those situations where a physician becomes an independent contractor for the health care entity and continues to provide services to patients.

Each notice provided under the act, whether sent by a health care entity or a physician, must be sent no later than the date of termination or 30 days after the health care entity has actual knowledge of termination or resignation of the physician, whichever is later, and in accordance with rules adopted by the State Medical Board. The notice must include at least all of the following:

A notice to the patient that the physician will no longer be practicing as an employee of the health care entity;

The physician’s name and any information provided by the physician that the patient may use to contact the physician. This portion of the notice is not required to be included if the health care entity has a good faith concern that the physician’s conduct or the medical care provided by the physician would jeopardize the health and safety of patients.

The date on which the physician ceased or will cease to practice as an employee of the health care entity;

Contact information for an alternative physician employed by the health care entity, or contact information for a group practice that can provide care for the patient;

Contact information that enables the patient to obtain information on the patient’s medical records.

Covered health care employers should continue to include non-competition provisions in physician employment agreements to the extent that they are necessary and appropriate to protect their legitimate business interests. In addition, nothing in HB 417 will prevent Ohio health care employers from restricting a physician’s ability to solicit its employees or referral sources following departure.

]]>United States Supreme Court: A Challenge To The Enforceability Of A Non-Competition Agreement Must Be Presented To The Arbitrator, And Not A Court, If The Contract Contains An Arbitration Provisionhttps://www.employerlawreport.com/2012/12/articles/workforce-strategies/united-states-supreme-court-a-challenge-to-the-enforceability-of-a-non-competition-agreement-must-be-presented-to-the-arbitrator-and-not-a-court-if-the-contract-contains-an-arbitration-provision/
Wed, 05 Dec 2012 14:40:54 +0000http://employerlawreport.default.wp1.lexblog.com/2012/12/united-states-supreme-court-a-challenge-to-the-enforceability-of-a-non-competition-agreement-must-be-presented-to-the-arbitrator-and-not-a-court-if-the-contract-contains-an-arbitration-provision/In Nitro-Lift Technologies, L.L.C. v. Howard, the U.S. Supreme Court this week held that if a contract contains an arbitration provision and there is a challenge to the validity of the contract, it is for the arbitrator and not a court to hear that challenge. The case is important for employers because the challenge was to the validity of a non-competition agreement. More specifically, the Supreme Court held that if a contract contains an arbitration provision, it is up to an arbitrator, and not a court, to determine whether the non-competition provision of the contract runs afoul of a …Continue Reading →]]>

In Nitro-Lift Technologies, L.L.C. v. Howard, the U.S. Supreme Court this week held that if a contract contains an arbitration provision and there is a challenge to the validity of the contract, it is for the arbitrator and not a court to hear that challenge. The case is important for employers because the challenge was to the validity of a non-competition agreement. More specifically, the Supreme Court held that if a contract contains an arbitration provision, it is up to an arbitrator, and not a court, to determine whether the non-competition provision of the contract runs afoul of a state law limiting the enforceability of such restrictive covenants. In so holding, the Court reaffirmed its earlier precedent that when a contract contains an arbitration provision, the Federal Arbitration Act. (“the FAA”), is the law of the land and that the FAA promotes a “national policy favoring arbitration.” So, the Supreme Court held, the Oklahoma Supreme Court erred when it held that a state law limiting the enforceability of non-competition agreements essentially negated the arbitration provision of the contract and allowed a court to declare the non-competition agreement void. Rejecting this judicial hostility towards arbitration, the U.S. Supreme Court held that pursuant to the arbitration provision, the validity of the contract as a whole, including the non-competition agreement, was a question for the arbitrator and not an Oklahoma state court.

Nitro-Lift Technologies, L.L.C. provides services to operators of oil and gas wells that enhance production of those natural resources. Nitro-Lift entered into confidentiality and non-competition agreements with two of its employees, Eddie Lee Howard and Shane Schneider. Each of those agreements also contained an arbitration clause providing in pertinent part: “Any dispute, difference, or unresolved question [between the parties] shall be settled by arbitration[.]” Howard and Schneider quit working for Nitro-Lift and began working for one of its competitors.

Nitro-Lift served a demand for arbitration on Howard and Schneider, claiming the former employees had violated the non-competition agreements. In response, the former employees filed suit in Oklahoma state court seeking a declaration that the non-competition agreements were null and void and to enjoin enforcement of the agreements. The trial court dismissed the complaint, finding the arbitration provision to be valid and controlling and, as such, it was for an arbitrator and not the court to resolve the parties’ dispute.

On appeal, the Oklahoma Supreme Court ordered the parties to show cause why an Oklahoma statute limiting the enforceability of non-competition agreements should not resolve the parties’ dispute. But what about the trial court’s holding that such questions should be resolved by an arbitrator and not a court? The state supreme court rejected that position, concluding that “the existence of an arbitration agreement in an employment contract does not prohibit judicial review of the underlying agreement.” In other words, the state supreme court effectively found that the state law limiting the enforceability of non-competition agreements trumped the parties’ agreement to arbitrate any disputes between them. Thus finding itself unshackled to address the validity of the non-competition agreements, the Oklahoma Supreme Court held those agreements were void and unenforceable pursuant to Oklahoma law.

In a per curiam opinion, the U.S. Supreme Court reversed. The Supreme Court held that the state supreme court’s decision ignored the Court’s precedents on the FAA. The substantive law the FAA created, the Supreme Court explained, applies equally in state and federal courts. A mainstay of the FAA’s substantive law is that attacks on the validity of a contract containing an arbitration provision are to be resolved by the arbitrator, not by a federal or state court. Accordingly, because there was no dispute that the arbitration provision was valid, it was the arbitrator’s role to determine whether Oklahoma law rendered the non-competition agreement null and void. The Oklahoma Supreme Court erred, therefore, when it assumed the arbitrator’s role and made that decision.

Employer Take-AwayMany employment contracts contain arbitration provisions. Too often employees attempt to circumvent the requirement of arbitration by seeking a judicial declaration that the contract is void or that the non-competition or non-solicitation provision is void or unenforceable. This decision makes clear that such challenges must be made to the arbitrator, and not the courts. So, even in jurisdictions disfavoring or limiting restrictive covenants, if the employment contract contains an arbitration provision governing the parties’ disputes, it is for an arbitrator and not a court to determine the validity of the restrictive covenant.

]]>Ohio Supreme Court Partially Reverses its Acordia Non-Compete Decisionhttps://www.employerlawreport.com/2012/10/articles/business-competition/ohio-supreme-court-partially-reverses-its-acordia-non-compete-decision/
Thu, 11 Oct 2012 18:59:31 +0000http://employerlawreport.default.wp1.lexblog.com/2012/10/ohio-supreme-court-partially-reverses-its-acordia-non-compete-decision/This past May, we reported that the Ohio Supreme Court ruled in Acordia of Ohio, L.L.C. v. Fishel that following a merger, the surviving company may not be able to enforce employees’ non-compete agreements, where the agreements failed to contain an assignment clause, and the time period of the employees’ non-competes began to run as of the date of the merger. The Court reconsidered its decision, and issued a new decision today. Upon quick review, the bottom line seems to be that the Court has decided that it mis-read earlier precedent regarding corporate mergers. Here is part of the …Continue Reading →]]>

This past May, we reported that the Ohio Supreme Court ruled in Acordia of Ohio, L.L.C. v. Fishel that following a merger, the surviving company may not be able to enforce employees’ non-compete agreements, where the agreements failed to contain an assignment clause, and the time period of the employees’ non-competes began to run as of the date of the merger. The Court reconsidered its decision, and issued a new decision today. Upon quick review, the bottom line seems to be that the Court has decided that it mis-read earlier precedent regarding corporate mergers. Here is part of the summary from the Office of Public Information:

Justice Lanzinger wrote, “Upon further consideration, we now recognize that the lead opinion’s reading of Morris [v. Investors Life Insurance Co.] was incomplete. While Morris does state that the absorbed company ceases to exist as a separate business entity, the opinion does not state that the absorbed company is completely erased from existence. Instead, the absorbed company becomes a part of the resulting company following merger. The merged company has the ability to enforce noncompete agreements as if the resulting company had stepped into the shoes of the absorbed company. It follows that omission of any ‘successors or assigns” language in the employees’ noncompete agreements in this case does not prevent the L.L.C. from enforcing the noncompete agreements.”

While we now hold that the L.L.C. may enforce the noncompete agreements as if it had stepped into each original contracting company’s shoes, we agree with Justice Cupp’s assertion in his dissent in Acordia I that even though the agreements transfer to the L.L.C. by operation of law, the transfer does not ‘foreclose appropriate relief to the parties to the noncompete agreement under traditional principles of law that regulate and govern noncompete agreements.’ … In other words, the employees still may challenge the continued validity of the noncompete agreements based on whether the agreements are reasonable and whether the numerous mergers in this case created additional obligations or duties so that the agreements should not be enforced on their original terms.”

The language in Acordia I stating that the L.L.C. could not enforce the employees’ noncompete agreements as if it had stepped into the original contracting company’s shoes or that the agreements must contain ‘successors and assigns’ language in order for the L.L.C. to enforce the agreements was erroneous. We hold that the L.L.C. may enforce the noncompete agreements as if it had stepped into the shoes of the original contracting companies, provided that the noncompete agreements are reasonable under the circumstances of this case. We accordingly reverse the judgment of the court of appeals and remand this cause to the trial court so that it may determine the reasonableness of the noncompete agreements.”

If you are involved in merger and acquisition due diligence, this removes one potential problem from your checklist. But the issue of whether a non-compete agreement is reasonable “under the circumstances” still needs to be considered.

]]>State Tort and CFAA Claims Survive Motion to Dismiss In Ohio Employee Cyberhacking Case.https://www.employerlawreport.com/2012/09/articles/workforce-strategies/state-tort-and-cfaa-claims-survive-motion-to-dismiss-in-ohio-employee-cyberhacking-case/
Tue, 25 Sep 2012 17:51:00 +0000http://employerlawreport.default.wp1.lexblog.com/2012/09/state-tort-and-cfaa-claims-survive-motion-to-dismiss-in-ohio-employee-cyberhacking-case/In a case that vividly demonstrates how employers are vulnerable to insider cyber attacks, a recent federal court decision out of the Southern District of Ohio addressed the scope of federal statutes designed to address such activity. In Freedom Banc Mortgage Services, Inc. v. O’Harra, the plaintiff’s complaint alleged that an employee began remotely downloading software programs on 27 of the employer’s computers and five servers. Through these programs, O’Harra, with the assistance of others, allegedly was able to access the employer’s employees’ email accounts, deleted hundreds of email from these accounts, uninstalled the employer’s security camera, deleted pictures …Continue Reading →]]>

In a case that vividly demonstrates how employers are vulnerable to insider cyber attacks, a recent federal court decision out of the Southern District of Ohio addressed the scope of federal statutes designed to address such activity. In Freedom Banc Mortgage Services, Inc. v. O’Harra, the plaintiff’s complaint alleged that an employee began remotely downloading software programs on 27 of the employer’s computers and five servers. Through these programs, O’Harra, with the assistance of others, allegedly was able to access the employer’s employees’ email accounts, deleted hundreds of email from these accounts, uninstalled the employer’s security camera, deleted pictures that the camera had recorded, and monitored employee Blackberry usage, among other activities. As a result of these unauthorized intrusions into the plaintiff’s computer system, the plaintiff’s computers began to operate slowly and eventually, 22 computers and three servers became inoperable. The plaintiff alleged that it lost business, productivity, and revenue as a result of the damages to its computers and, in December 2010, ceased business operations.

Freedom Banc filed its complaint against O’Harra and her alleged accomplices alleging violations of the federal Computer Fraud and Abuse Act ("CFAA"), the Stored Communications Act ("SCA") and state law tort claims of trespass to chattels, conversion and conspiracy. In response, the defendants moved for dismissal. With respect to the CFAA count of the Complaint, the court rejected each of O’Harra’s arguments that attacked the statute’s applicability. First, O’Harra argued that the computers at issue were not "protected computers" within the meaning of the CFAA, but the Court concluded, as have virtually all courts that have addressed this issue, that any computer that is connected to the Internet is "protected" for purposes of invoking the CFAA. Next, O’Harra argued that for the CFAA to apply, the plaintiff must allege damages of at least $5,000 caused by a single unauthorized intrusion into a protected computer. Again, the Court had little difficulty rejecting this argument and found that the plaintiff’s alleged damages of at least $5000 in the aggregate was sufficient to invoke the CFAA’s protection.

The Court also permitted the plaintiff’s state law tort claims to proceed. The Court concluded that the plaintiff’s complaint sufficiently pleaded a trespass to chattels claim by alleging that O’Harra deprived plaintiff of the use of its computers and impaired those computers as to their condition and value. Similarly, plaintiff’s complaint also alleged a cause of action for conversion by alleging that O’Harra downloaded software programs onto plaintiff’s computers that gave them "complete access to and control over” plaintiff’s email accounts and security camera, among other things, and by alleging that the defendants deleted hundreds of email messages from plaintiff’s email accounts, deleted photographs from plaintiff’s security camera, and continued to access and initiate contact with plaintiff’s computers until they were ultimately rendered inoperable. Finally, the Court upheld the conspiracy count of the complaint based on the allegations that O’Harra conspired with her co-defendants in a "malicious combination" to gain unauthorized access to the plaintiff’s computer systems.

The Court, however, agreed with O’Harra that the SCA claim was subject to dismissal on technical grounds. Specifically, the SCA makes it an offense to intentionally access without access or in excess of one’s authorization a "facility through which an electronic communication service is provided" and thereby obtain, alter, or prevent authorized access to a wire or electronic communications "while it is in electronic storage in such system." Cutting to the chase and avoiding the heavy technology jargon, let’s just say that the Court concluded that information stored on an individual’s hard drive, such as images, personal information, and emails that he or she has downloaded is not "electronic storage" as defined by the SCA. As a result, the Court concluded that the "facilities" that the SCA is designed to protect are not computers that enable the use of an electronic communication service, such as an individual’s personal computer or laptop, but instead the facilities that are operated by the electronic services providers themselves.

This case highlights the fact that the federal statutes available to employers to protect them from unauthorized access to their computer systems are confusing, in serious need of updating and subject to hypertechnical analyses. Don’t lose track of basic state law remedies that may, as they did here, come to the rescue. Ultimately, however, the best protection for employers always will be to take the necessary security steps to prevent these kinds of cyber attacks in the first place.

]]>Ohio Supreme Court Rules On The Enforcement of Non-Compete Agreements By The Surviving Company In A Mergerhttps://www.employerlawreport.com/2012/05/articles/business-competition/ohio-supreme-court-rules-on-the-enforcement-of-non-compete-agreements-by-the-surviving-company-in-a-merger/
Tue, 29 May 2012 18:54:56 +0000http://employerlawreport.default.wp1.lexblog.com/2012/05/ohio-supreme-court-rules-on-the-enforcement-of-non-compete-agreements-by-the-surviving-company-in-a-merger/The Ohio Supreme Court ruled 4-3 on May 24, 2012, that following a merger the surviving company may not be able to enforce employees’ non-compete agreements where the agreements fail to contain an assignment clause and the time period of the employees’ non-competes began to run as of the date of the merger.

In Acordia of Ohio, L.L.C. v. Fishel et al., the Ohio Supreme Court ruled that a merger causes the original corporate party to non-compete agreements to cease to exist, while the surviving company takes ownership of the agreements. But where the non-compete agreement fails to contain …

The Ohio Supreme Court ruled 4-3 on May 24, 2012, that following a merger the surviving company may not be able to enforce employees’ non-compete agreements where the agreements fail to contain an assignment clause and the time period of the employees’ non-competes began to run as of the date of the merger.

In Acordia of Ohio, L.L.C. v. Fishel et al., the Ohio Supreme Court ruled that a merger causes the original corporate party to non-compete agreements to cease to exist, while the surviving company takes ownership of the agreements. But where the non-compete agreement fails to contain an assignment clause, the surviving company may not enforce the non-compete agreement as if it “stepped into the shoes” of the company that had originally contracted with the employees. Although the employees’ non-compete agreements transferred automatically by operation of law to the surviving company, the Ohio Supreme Court held that the non-compete agreements at issue provided only that the employees would avoid competition following their termination from the specific company identified in the non-compete agreements. Because the non-compete agreements did not state they could be assigned or would carry over to a successor, the Ohio Supreme Court ruled that the named parties intended the agreements to operate only between themselves — the employees and the specific employer. According to the Acordia decision, the termination of the employees’ employment with the original company was triggered by the merger, which commenced the running of the non-compete periods. These periods expired on their own terms after two years of employment with the successor — Acordia — and thereby made the non-compete agreements unenforceable by Acordia when the employees later joined a competitor.

The dissenting opinion in Acordia noted that the lead opinion runs counter to Ohio’s century-old precedent that in a merger, the consolidated party steps into the shoes of the constituent companies and that by operation of law, and in the absence of explicit contract language to the contrary, the surviving entity is vested with all the assets and obligations of the constituent entities. Those assets and liabilities historically have included agreements such as non-compete agreements and the ability to enforce them as if the surviving entity were a signatory to them.
Recommendations
It is too early to know the reach and impact of this ruling, but we can foresee that Acordia’s analysis might be applied by Ohio courts to contracts other than non-compete agreements. Therefore, at a minimum, Acordia serves as a reminder to contracting parties to be mindful of the importance of considering the portfolio of contracts in place at a company involved in a merger.

Clients are cautioned to examine all of their agreements governed by Ohio law with respect to provisions that may be viewed as triggering a termination or dealing with an assignment by operation of law in the context of a merger to assure that the Acordia decision is followed. In order to assure that an agreement is fully transferred by a merger and that a surviving company may enforce the agreement on the same terms as the original corporate party, we recommend clients assure agreements do not restrict the “company” only to the original corporate party but that the term specifically includes the original corporate party’s “successors and assigns.”

Specifically with respect to non-compete agreements, we recommend clients review the language to assure it includes an appropriate assignment clause so that the commencement of a non-compete period is not triggered by a merger in which the original party to the agreement is not the surviving entity.

Acquiring companies’ due diligence investigations on potential Ohio target companies will need to include a review of all business agreements to determine if Ohio law governs and to assure that the surviving entity in a merger is assuming full rights and responsibilities for all obligations of the constituent entity, including enforcement of such agreements on the same terms as the original corporate party.